Prices have not been able to find any traction as of late, says Don Shurley, University of Georgia Extension cotton economist, and, as expected, China began auctioning off part of its vast reserve stock, which will impact the market and planting intentions well into 2014.
For producers, the reality is a price in the range of 77 to 82 cents, says Shurley.
“Any improvements are likely going to be hard-pressed to break the 82-cent area given the supply/demand conditions as we now know them,” he says.
After falling below 77 cents in mid-November, Shurley says prices made a slight recovery by the end of the month.
“This was welcome news,” he says. “Prices closed the week at 79.35 cents per pound.”
Shurley says he is hopeful that the recent downturn is over, and a new floor of support is now in place around the 77-cent area for March futures.
“If this floor holds, a price range of 77 to 82 cents can be expected,” he adds.
Set Reasonable Goals
As noted in the UGA production guide, “Growers are urged to set reasonable average price goals and take action when goals can be achieved. The optimum approach is to spread risk by pricing portions of the crop at three or four or more times during the year rather than thinking you can pick the top and make one big ‘bang’ decision.”
Producers thinking about how they want to sell their 2014 cotton should note that there are several options and, yet, fewer “buyers” than prior to electronic trading, says Carl Anderson, cotton marketing analyst and Professor Emeritus, Texas A&M University.
“The Seam market system is a good alternative to locate a buyer and to evaluate the current cash prices,” he says. “Cotton pools and market associations are available. They also offer alternative pricing methods.
“Fewer forward contracts than in the past are being offered. Growers need to understand all conditions specified in bale contracts that affect quantity of cotton delivered.
“Futures and options contracts offer opportunities to fix a price on at least some of your production,” Anderson says. “However, it is necessary to understand advantages and disadvantages of futures and options. The key is price fixed, cost involved and margin call responsibilities.”
Keep Options Open
As for contracting of this crop, according to USDA estimates, only 17 percent of the U.S. crop was contracted as of Nov. 1, with the Southeast contracting at 36 percent.
Shurley says this is difficult to believe given that 2013 crop futures spent a good portion of time around the mid-80s or better and even made three charges to 87 cents and more. Now, he doubts many producers will decide to do any marketing until the opportunity for a price in the 80s comes back around.
Shurley also reminds producers of the limitations of putting their crop in the loan.
“When using the loan, your outcome is determined only by prices after harvest; you’ve cut your marketing window in half and already forgone any pre-harvesting pricing opportunities.”
Spreading the risk is always preferred in marketing any crop. As the end of the year approaches, producers can be encouraged by the fact that China has continued to import cotton even as they sell off their own reserves, and, while this is typically the time of year for lower prices, perhaps price has at least leveled off.
Contact Amanda Huber at email@example.com or (352) 486-7006.